‘‘The powerful forces of globalization are fundamentally changing the nature and dimensions of strategy (Eisenhardt, 2002, p. 88).’’ Global organizations are facing massive amounts of instability, complexity, and change.
Neoclassical economics has given way to Austrian and Schumpeterian economics that are more able to deal with disequilibrium, the inner workings of the firm, and entrepreneurship. We have argued for the combination of entrepreneurial and relational capabilities that result in a higher-order capability referred to as interpreneurship. In this section we examine firms that appear to have interpreneurial capabilities.
ABB
ABB is a manufacturing and service firm specializing in electrical products and services. ABB was formed from the merger of two companies in 1988 and resulted in 1,000 companies with 5,000 business teams as profit centers.
ABB was originally characterized by autocratic leadership at the top of the organization. As ABB experienced mounted competitive pressure to become more efficient and entrepreneurial, it began to push decision making to lower business units in the organization and develop closer relationships with its customers. ABB’s sales grew from $17 billion to more than
$30 billion in 4 years (1993–1997). In 1997 alone, sales grew 14%. This was accomplished by proactively entering many countries, especially Eastern Europe. ABB was then able to leverage its close customer relationships and provide services to these customers that entered countries behind ABB.
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Consequently, ABB’s business strategy consisted of being a first mover geographically.
The interpreneurship concept provides a likely explanation for why the changes ABB implemented improved performance so dramatically.
By combining entrepreneurial initiatives with a stronger reliance on social capital in decision making, the company was able to strengthen customer relationships ‘‘at the local level’’ which enhanced their ability to succeed as they entered heterogeneous markets. Although this proactive business model represents a process innovation rather than a product innovation, it created a unique competitive advantage for ABB and its key customers.
By creating an entrepreneurial climate and developing mutual interdepen- dencies with customers, ABB was able to be an early mover and to provide services to its customers as they entered new countries in which ABB was already present (Galbraith, 2005).
Procter and Gamble (P&G)
In the late 1980s, large retailers began to exercise power and demanded such things as a single interface and just-in-time supply. P&G made two critical changes to its structure (see 2006 P&G annual report, pp. 4–6). The first change was a change in their micro-structure (enterprise teams) in 1989.
Before their redesign in 1998, P&G relied on selling teams consisting solely of sales people focused on category management (see Fig. 5). After their worldwide redesign, multifunctional enterprise teams were intentionally designed to consist of sales, market development, finance, product supply, logistics, and HR employees (see Fig. 6). These business teams were mirrored by its key customers. For example, if Wal-Mart experienced a logistics problem, the logistics person on the P&G enterprise team would be contacted. This resulted in a large customer having to deal with a single business unit, their respective enterprise team, rather than possibly having to deal with 2,380 organizations (17 SBUs 70 product groups 2 matrix organizations). This resolved a number of problems such as time to respond to customers, communication, coordination, interface, integration, power/
control, and matrix complexity.
P&G did another redesign in 1998. This second major change was in their macro-structure. P&G was organized in a matrix structure around 17 geographic SBUs and 70 Product groups from 1980 to 1998. As North American retailers (e.g., Wal-Mart, Target) began to exert more control and grow into global firms, P&G subsequently reorganized into a global
business units (GBUs) structure that is designed to sell a set of products on a global basis. Currently P&G comprises six global product GBUs and one market development organization, which has resulted in global pricing, global sourcing, and global customer business development. In order to be capable of responding to their largest customers (e.g., Wal-Mart, Target, Kroger), enterprise teams were designed to manage all business with their respective key customer (seeFig. 7).
These major changes in structure allowed P&G to leverage its key customer relationships more fully and manage a customer’s business at the
Fig. 5. Key Account Team (KAM) Continuum.
Sales Sales
Sales
Sales
Sales Sales
Sales
After Redesign
Fin/Acct Sales
Market Development
Logistics
Sales HR
Sales
Selling Teams vs. Enterprise Teams Before Redesign
Fig. 6. P&G Team Design.
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enterprise team level rather than going to SBUs. The enterprise teams were given autonomy and made into and referred to as profit centers, which resulted in an increase in North American net outside sales dollar volume by 6% and case volume by 4%, while sales-related costs remained constant.
P&G also increased customer commitment and satisfaction, also increasing product development. P&G’s interpreneurial capability has resulted in some retailers, such as Wal-Mart, to outsource the management of their product categories and aisles to P&G.
CONCLUSION
As contingency theory would predict, the firms chosen to illustrate the managerial practice of interpreneurship have unique structures that allow them to leverage entrepreneurial and relational factors. The research in this chapter has presented the argument that interpreneurship creates a competitive advantage by combining a firm’s entrepreneurial capability with its inter-organizational relationships. Our statistical results and anecdotal evidence from existing firms provides strong support for the interpreneurship capability. The forces of globalization will continue to drive change and require innovative business practices. One way in which firms can deal with competitive pressures is to leverage entrepreneurial capabilities through their inter-organizational relationships.
The entrepreneurship capabilities demonstrated through the above firm’s inter-organizational relationships can be best depicted by the current CEO (A.G. Laftey) of P&G in their 2006 Annual Report. He states:
We get the full value of the Company’s strengths with a unique organizational structure and supporting work systems. P&G is the only consumer products company with global business unit profit centers, a global market development organization, and global shared business services, all supported by innovative corporate functionsy
The primary benefit of allowing business units to focus singularly on consumers, customers, and competitors in their individual categories is evident in the growth of
GBUs 6 Product 1 Market Dev. Org.
Enterprise Teams 126 Teams throughout World
10 Government Teams 36 Channel Teams 14 Process Teams Corporate
Office Retailer
Fig. 7. P&G Organizational Structure.
P&G’s Skin Care, Oral Care, Feminine Care, and Home Care businesses. These four businesses have delivered 11% average sales growth over the past six years, adding nearly $1 billion per year in sales since the beginning of the decade. In the old structure [prior to 1998], and with past strategies, these businesses were not a priority. They did not get full attention from business leaders who had to keep core businesses growing while also supporting all the go-to-market and business services activities that were vertically integrated within the business units.
In the much more agile, flexible, and responsive current structure, these limitations have been stripped away and businesses such as Skin Care and Home Care have become strong global businesses in their own right, with the resources and focus necessary to grow. Their growth potential has been unleashed, and these businesses have emerged as disproportionate growth drivers – even as core businesses such as Fabric Care, Baby Care, and Hair Care have continued to grow ahead of their categories simultaneously.
Organizational structure can be a liability, particularly for large, diversified multi- national companies. By linking structure so tightly with strategies and strengths, we have made organization design and supporting business systems critical enablers of sustainable growth.
This inter-organizational relationship is indeed a value-added capability (P&G 2006 Annual Report, p. 6).
ABB and P&G are just two among many firms that could attribute their success to an ‘‘interpreneurial’’ approach. IBM’s Insurance Research Center, which was created to bring researchers together with lead customers to develop applications for the insurance industry, provides another example. One result of this effort was to develop IBM’s insurance application architecture (IAA) that has been used with 40 different insurance and financial services companies. Again, this is an example of a firm that was enabled to capture new business by coupling its entrepreneur- ial abilities with key customer relationships to create a new capability. This new combination can be leveraged to achieve competitive advantage and venture growth. Interpreneurship, therefore, as a process that draws on both internal entrepreneurial skills and external strategic alliances, provides numerous promising avenues for future research.